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# fm9 7 - (D(E \$25.00 \$25.00 \$ 0.00 \$ 3.00 \$3.00 30.00 25.00...

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Mini Case: 9 - 7 c. Consider Triple Trice’s call option with a \$25 strike price. The following table contains historical values for this option at different stock prices: Stock Price Call Option Price \$25 \$ 3.00 30 7.50 35 12.00 40 16.50 45 21.00 50 25.50 1. Create a table which shows (a) stock price, (b) strike price, (c) exercise value, (d) option price, and (e) the time value, which is the option’s price less its exercise value. Answer: Price Of Strike Exercise Value Market Price Time Value Stock Price Of Option Of Option (D) - (C) = (A) (B) (A) - (B) = (C)
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Unformatted text preview: (D) (E) \$25.00 \$25.00 \$ 0.00 \$ 3.00 \$3.00 30.00 25.00 5.00 7.50 2.50 35.00 25.00 10.00 12.00 2.00 40.00 25.00 15.00 16.50 1.50 45.00 25.00 20.00 21.00 1.00 50.00 25.00 25.00 25.50 0.50 c. 2. What happens to the option’s time value as the stock price rises? Why? Answer: As the table shows, the option’s time value declines as the stock price increases. This is due to the declining degree of leverage provided by options as the underlying stock prices increase, and to the greater loss potential of options at higher option prices....
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